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Privatization: Successes and Failures Page xiv (14 of 255)
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xiv FOREWORD
enforce contracts and competitive auction pro cesses that minimize the
rents paid to private oil companies. Oil companies have repeatedly tried
to get advantageous contracts and, even after signing a contract, to cheat
on what they pay—even with seemingly sophisticated governments like
that of the state of Alaska.13
C O M P A R I N G P R I V A T E A N D P U B L I C M A N A G E M E N T
The fact that, on average, private fi table than public rms seem more profi
fi rms are more effi cient. The rms does not necessarily mean that private fi
public fi rms do rms may, for instance, face constraints that the private fi
not; the solution to the problem may not be privatization but changing
the constraints. Most importantly, many public fi rms face tight invest-
ment constraints. This comes because many developing countries face
tight bud get constraints in which the IMF has artifi cially consolidated
state- run enterprises with the rest of the government bud get. (It does not
do this, at least in the same way, for advanced industrial countries.) These
bud get constraints mean that there is underinvestment in state- run enter-
prises; the poor per for mance is a result of this underinvestment.
Moreover, many public fi rms are entrusted with distributional objec-
tives. Everyone, no matter how poor, should have access to clean water.
This may entail delivering water at below average cost—and even below
marginal cost. There is a cross subsidy, but the “water tax” imposed on
higher- income individuals may not be enough to offset the losses on the
low- income individuals. By contrast, a private profi t- maximizing water
company will focus on those able to pay more. If there is a limit on the
amount of treated water, it may not even supply water to the poor, and in
any case, it will not deliver water to anyone at below marginal cost.
It is thus no surprise that water privatizations have been the subject of
such controversy. While they have often been justifi ed as providing the re-
sources necessary for the investment to expand ser vice to all, they have
not been perceived as doing this.
L E G A L D I S P U T E S
Some governments, of course, have been worried about these distributional
consequences of privatizations and have tried to mitigate the adverse reac-
tions by imposing ser vice requirements. In other cases, governments have
demanded that an oil or gas company given a concession make certain
